In view of realized and expected labor market conditions and inflation, the Federal Open Market Committee decided to raise the target range for the federal funds rate from 0.50 percent to 0.75 percent, said the Fed in a statement Wednesday after concluding a two-day policy meeting.

"The moderate economic expansion continued strengthening of labor market and the improvement in inflation condition supported the central bank to raise interest rates after nearly a one-year pause," said the statement.

The Fed also released its updated economic projections, which indicated that the central bank forecasts three rate hikes next year, while in its September projections, Fed officials expected only two rate hikes in 2017.

On the economic front, the Consumer Price Index for all urban consumers increased 0.2 percent in November on a seasonally adjusted basis, on par with market consensus, the U.S. Labor Department said Thursday.

"Rising energy prices will bring the headline reading back to the 2 percent range in 2017, but whether core prices will trend up next year is the more important question for investors and central bankers alike," said Jay Morelock, an economist at FTN Financial, in a note.

Meanwhile, in the week ending Dec. 10, the advance figure for seasonally adjusted initial claims was 254,000, a decrease of 4,000 from the previous week's unrevised level of 258,000, said the Labor Department in another report.

The seasonally adjusted Markit Flash U.S. Manufacturing Purchasing Managers Index came in at 54.2 in December, up fractionally from 54.1 in November.